If you’re a new driver, you may be wondering, “how does car insurance work?” In exchange for an annual or semiannual fee (called a premium) an insurance company promises to pay for car repairs and/or medical expenses. But exactly what is covered and how to file a claim depends on your insurer and the specific coverage that you purchase. However, most companies have the same or similar steps for purchasing insurance and filing claims.
We’ve spent the past few months reviewing the best car insurance providers, and in this guide, we’ll give you the lowdown on how car insurance works, from getting a quote to filing a claim.
Whenever you shop for car insurance, we recommend getting quotes from multiple providers so you can compare coverage and rates. In addition to the insurance company you choose, factors such as your age, vehicle make and model, and driving history can affect your premium, so what’s best for your neighbor might not be best for you.
Enter your zip code in our tool below or call our team at (844) 246-8209 to start comparing personalized car insurance quotes:
What Is Car Insurance?
Car insurance is a type of financial protection in case you are injured, your vehicle is damaged, or you cause an accident that results in injuries or property damage. A typical car insurance policy includes a mix of different coverage types, each paying out for different circumstances.
When you purchase a car insurance policy, what you’re really purchasing is a contract between you and the provider stating that if one of the events covered by your policy occurs, your provider will cover the costs.
In this way, an auto insurance policy protects you against large, unexpected expenses that you may not be able to cover on your own. Without car insurance, you’d need to pay the equivalent cost of a car out of pocket if you totaled someone’s car in an accident. However, with a liability car insurance policy, your insurance provider will cover that cost.
What Does Car Insurance Cover?
Although car insurance is spoken about like a singular product, a typical car insurance policy is actually made up of several different types of car insurance that are wrapped up together into one policy that you know as your auto insurance policy.
The six standard types of auto insurance are:
- Liability auto insurance (BI/PD): covers the cost of damage and injury to third-parties, as well as your legal fees, should someone leverage an auto-related lawsuit against you
- Collision insurance: covers the cost of damage and injury to yourself and your passengers should you be involved in a collision with another car or object
- Comprehensive car insurance: covers damage to your own car that results from theft, vandalism, natural disasters, civil disturbances, and other non-collision events
- Medical payments insurance (MedPay): covers the cost of you and your passengers’ accident-related medical expenses
- Personal injury protection (PIP): covers the cost of you and your passengers’ accident-related medical costs and also reimburses you for lost wages due to an accident-related injury
- Uninsured/underinsured motorist insurance (UM/UIM): covers you if you get into an accident with a driver who doesn’t have insurance and consequently can’t pay for damages to your vehicle or treatment for any injuries you might sustain
Additional Coverage Options
In addition to the six standard coverage options mentioned above, many car insurance companies also offer additional optional coverage, such as
- Gap insurance: covers the difference between the actual value of your car and how much you still owe on it if you significantly damage or total a financed or leased car before your financing term is over
- Rental reimbursement: covers the cost of a rental car if your car becomes undrivable for an extended period of time
- Rideshare insurance: covers motorists driving for ridesharing companies like Lyft, Uber, etc
- Mechanical breakdown insurance: covers the costs of car repairs due to mechanical breakdowns, similar to an extended car warranty
- Roadside assistance: covers the costs of emergency road services when your car malfunctions, such as towing, battery services, or flat tire replacement
Most types of car insurance coverage include a coverage maximum. A coverage maximum is the highest amount that the insurer will pay after a claim.
For example, your liability insurance may have a coverage limit of $30,000. If you get into an auto accident and cause $45,000 worth of damage, your insurance would cover the first $30,000, but you’d need to pay the remaining $15,000 out of pocket.
Collision and comprehensive car insurance policies usually have deductibles: an amount of money you have to pay out of pocket each term (usually six or twelve months) before your insurance kicks in.
For example, your collision coverage may have a $1,000 insurance deductible. This means that if you get into a collision and sustain $5,000 worth of damages, you’d need to pay the first $1,000 out of pocket, and your provider would cover the remaining $4,000. If you got into another accident within the same term and sustained yet another $5,000 worth of damages, this time your insurance would cover the entire $5,000, as you already met your deductible for the term.
In general, a lower deductible brings with it a higher premium and vice versa.
Full Coverage Vs. Minimum Coverage
When purchasing a car insurance policy, you’ll often be deciding between a full coverage and minimum coverage policy. “Full coverage” refers to a policy that includes:
- Collision insurance
- Liability insurance
- Comprehensive insurance
A minimum coverage policy, consists of only the insurance coverage required by your state’s laws. In many cases, that’s just liability insurance, so in the event of an accident, your own damages and injuries won’t be covered. Although you’ll pay a lower premium for a minimum coverage policy, you will have a much lower level of protection. If you’re not prepared, you could end up in financial ruin following a serious accident.
For this reason, many experts recommend purchasing a full coverage policy to ensure that you have sufficient coverage and financial protection.
How Do I Get Car Insurance?
For the most part, you can take out a new car insurance policy by finding a provider, navigating to its website, requesting a quote, and then purchasing a policy if you like the quote you received. You can also call your chosen provider or schedule an in-person meeting with one of its insurance agents.
When you request a quote, you should be ready to supply the following information:
- Personal information such as your name, age, and address
- Details about your driving record such as past tickets
- Vehicle year, make, and model
- Vehicle identification number (VIN)
After you’ve compared some quotes and settled on an insurer, you can usually pay online immediately to begin your coverage. Of course, you can also talk with an agent or representative on the phone or in-person to take out coverage. The agent will walk you through all your different options to help you construct a policy that fits your needs. Once you’ve settled on a policy, they’ll tell you how to purchase it.
To get matched with the best quotes in your area, use the tool below or call our team at (844) 246-8209 for free, personalized quotes.
How Much Does Car Insurance Cost?
- Your car
- Where you live
- Your driving history
- Your age
Your car will affect your car insurance premium based largely on two factors: how safe it is and how expensive it is.
The safer your car is, the lower its premium will be, as safer cars are less likely to get into accidents. If an auto accident does occur, the driver and passengers are less likely to be injured. Either way, that means a lower chance for an expensive insurance claim.
The more expensive your car, the more an insurer may need to pay to have it repaired. A totaled Ford Fiesta is cheaper to fix than a wrecked Lamborghini. Expensive cars may also have higher theft rates, which is an added risk for the insurer.
Where You Live
Each state sets its own minimum insurance requirements, so the average cost of minimum insurance varies. Driving conditions vary by state and even by city. Living in a densely-populated city means a higher likelihood of an accident or theft.
Your Driving History
If you have a driving record free of accidents and traffic violations, expect a lower premium. However, if your history includes several crashes and speeding tickets, your insurance rates will run high. Even a single-car accident can significantly raise your premium.
Drivers under 25 typically get higher premiums. After 25, rates begin to lower, reaching its lowest point when for drivers in their 50s and 60s. After that, rates gradually begin to rise again.
The reason for such high rates for young drivers is two-fold: For one, statistics from the Center for Disease Control and Prevention show that drivers between the ages of 16 and 19 are more likely to get into a car accident than any other age group. Secondly, young drivers have a shorter driving history, which means insurance providers have less to go on when determining how safe of a driver they are.
Rates begin to increase for senior who are more likely to suffer from Alzheimer’s, dementia, vision problems, and a number of other health issues that can make driving more dangerous.
What Happens When You Get Into An Accident?
If you get into an accident, the first thing you’ll need to do is call the police so they can document the incident.
Then, you’ll need to decide whether you want to file a claim with your provider. When you file a claim, it means you believe the damage or injuries sustained in the accident are covered under your policy, and you’re requesting that your provider cover the costs.
Most insurance providers offer a few different ways to file a claim, including:
- Through a mobile app
- By telephone
In all cases, you will need to describe the incident to your provider, who will then assign an investigator or adjuster to the case. The adjuster will investigate the incident and determine whether it’s covered under your policy – and if it is, how much your insurance will cover.
Our Top Provider Recommendations
In our research, we gave USAA and Geico the highest marks for customer service, financial strength, price, and coverage. Here’s a closer look at each.
Enter your zip code in our tool below or call (844) 246-8209 to start comparing car insurance quotes:
USAA: 4.8 Stars
Out of every company we reviewed, USAA car insurance took the top spot. The company has an A++ financial strength rating from AM Best and ranked number one in J.D. Power’s 2021 Auto Claims Satisfaction Study. Together, this indicates that USAA has the financial strength to fulfill claims, and its customers are typically satisfied with how it does so.
Furthermore, we found that USAA has the lowest average annual premium in the entire insurance industry, proving that you don’t need to pay exorbitantly high premiums for superb service.
Unfortunately, USAA is only available to military members and their families, so civilians will need to look elsewhere. But for those who qualify, USAA is a great bet.
Read more in our full USAA auto insurance review.
Geico: 4.6 Stars
Although USAA took home the gold, Geico auto insurance was a close second and our first choice for consumers overall. The brand’s focus on integrating technology makes for a quick and convenient quote and claim filing process via its website or mobile app. However, customers who prefer to file their claims in person or on the phone have those options available to them as well.
We found that Geico has an A++ financial strength rating from AM Best and performed well in J.D Power’s 2021 Auto Claims Satisfaction Study, both of which bode well for the ease with which customers can get their claims fulfilled.
Geico’s average annual premiums were higher than USAA’s, but they were still quite reasonable and cheaper than most other car insurance providers.
All in all, we believe Geico is the best choice for non-military members seeking car insurance.
Read more in our full Geico auto insurance review.
How Does Car Insurance Work?: FAQ
In an effort to provide accurate and unbiased information to consumers, our expert review team collects data from dozens of auto insurance providers to formulate rankings of the best insurers. Companies receive a score in each of the following categories, as well as an overall weighted score out of 5.0 stars.
- Industry Standing: Insurers with strong financial ratings and customer-first business practices receive the highest scores in this category.
- Availability: We consider availability by state as well as exclusions for specific groups of drivers.
- Coverage: This rating is based on types of insurance available, maximum coverage limits, and add-on policies.
- Cost and Discounts: Our research team reviews sample quotes for a variety of drivers in every state. Companies with lower prices and many car insurance discount opportunities receive the best scores.
- Customer Service: We comb through customer reviews and consumer feedback studies from experts like J.D. Power.
- Technology: Auto insurers with mobile apps, advanced online services and telematics are more likely to meet consumer needs.